Most of the people choose day trading to trade foreign currencies. The main reason is that it does not require significant capital for day trading. Furthermore, this form of trading can help you earn a lot of profit, and it trades 24 hours a day in a week. Due to the leverage provided by the brokers, you can run a handsome amount of money. On the other hand, it is volatile, which can also result in losing money. If you do not know about forex trading, then you can visit Apprendre le forex.
Risk management of day trading
As we mentioned earlier, that forex is extremely volatile, so a trader needs to manage the risk. Because it is an essential element for making a profit. To manage the risk, you need to set a loose limit on a single trade. For example, if you have a $5000 account, then you lose on a single trade cannot be more than $50. You can do this from the stop-loss order section of the forex platform.
Day trading strategy
A day trading strategy has many elements that can affect the profitability in various ways. However, the strategy is ranked based on its risk/reward and win-rate ratio.
Risk/Reward
It is the amount at risk to gain a certain profit. For example, if you are losing 15 pips on the losing trades but making 20 on the winning trades, then you are making more on the winners. In short, you are making a profit of 50% of your trades; it means you will be profitable. That is the main thing that day trade do to make more on the winning trades. If your win rate is higher, then you have more flexibility with risk/reward.
Win-Rate
Win-rate means the number of winning trades out of all the trades. For example, you have made 100 trades in a day, but you win only 60 then your win-rate will be 60 per cent. You need to keep in mind that it is not required and have a win rate above 50 is acceptable. Most of the day traders have this attainable rate.
Hypothetical scenario
For example, you have a trading account with $5000 and have a win rate of 55%. The stop-loss order is set to $50 per trade. For this, you need to place the stop-loss five pips away and need to place the target at eight pips away.
It also means that the average reward on a trade will be 1.6 times higher. Your primary focus should be to win more trades than losing.
Trading currency pairs
Let’s suppose you are trading a currency pair and you can risk $50 on each trade. It means that each pip of movement is worth $10. Hence, you can place the stop-loss order at five pip. It will keep the risk of losing on trade on $50. On the other hand, you are placing the winning eight pip away, which means your winning trade is worth $80.
Comments are closed.